We live in very interesting times- both from an economic and political perspective. I generally try to avoid the politics topic as it fires people up one way or another. However, I don't think that the impact of politics on taxes, especially in the current environment, can be ignored. This year will be especially dynamic as it is an election year with a lot of dissatisfaction with the current legislators. There are several different ways that this will come into play. For one, we have many of the Bush tax cuts that will be expiring at the end of 2010. Although these tax cuts are more at the individual level than at the business level, they still affect business owners. There has been talk of extending the tax cuts for all individuals or allowing the credits for wealthier individuals (typically Adjusted Gross Income > $250,000) to expire.
It appears that the government is also beginning to realize that the economy will not improve for the long-term until more jobs are generated and stability has been added back to the American economy. One of the quickest ways to generate jobs is to provide incentives for businesses to hire individuals. We have had that this past year via the H.I.R.E. act and I would not be surprised if they extended it into 2011 or implemented something similar. I also believe that the government has realized that the economy will not stabilize until the banks start lending again. They will probably start looking at ways to encourage banks to start lending to businesses again. Finally, the government may offer additional tax incentives for businesses to purchase new business equipment.
What is the takeaway from this? Legislative changes will be coming that will affect tax credits for both businesses and individuals. I do everything I can to stay on top of these changes and to keep my clients informed as to how, once implemented, you can utilize new tax laws to your advantage. Expect updates later in the fall to provide more detailed information on tax legislation that actually gets implemented.
With the current real estate market, many individuals will probably end up staying in their current house or business location longer than they had planned. However, when you live in an older home you often end up with higher energy related costs. I am always looking for ways for myself and my clients to save money. Investing in a renewable energy project is one way for you to save money.
Renewable energy projects have several tangible benefits. There are 30% federal and 35% North Carolina tax credits. Please note that these credits are subject to some limitations, so be sure to look at the specifics of your technology as well as your anticipated tax liability for the immediate future. In addition to the tax credits, Solar Renewable Energy Certificates (SRECS) can be sold to utility companies (they need them to be in compliance of new laws). What do all these credits mean? In a recent real world example I have had the privilege of being involved with, a $28,000 solar project will end up costing the taxpayer under $5,000 after all the credits. Then factor in the operating savings from the solar panels and they will have paid for themselves in around 5-6 years. Most panels are warrantied for 15-20 years. I have focused on solar panels with my example but there are similar credits with wind and geothermal projects.
How can you learn more about renewable energy? The Cape Fear Green Building Alliance (CFGBA) will be hosting a solar tour on Saturday September 25th. Tickets are available here. The CFGBA and the Wilmington Business Journal are holding a Green Living Conference and Expo on Wednesday October 13th. I will be teaching two classes on tax credits and green technologies. Many of the classes are free
I believe in being proactive. Many of you in Wilmington NC may be dealing with the new 8% sales tax rate in New Hanover County. Here is how you change the rate in Quickbooks:
Go to the Item List.
Find the current Sales Tax item.
Change the Rate.
This will not effect past entries of Sales Receipts or Invoices.
Verify that the rate is correct in a new invoice.
Small Business Jobs Act offers several tax breaks for small businesses and may help with lending. It will keep your accountant and tax preparer busy studying up on the new changes.
You may never have had a discussion with a tax professional about tax planning. Most people, including many of my peers, don't have the mindset to view their taxes as a plannable event. Most people view taxes as tax preparation, which is an after the fact activity. You can't undue the previous year when you are filing your taxes. That means that people are often faced with a large tax bill or paid a lot of taxes during the year. I hope that I can change your mindset and the mindset of others in the area. I believe that tax planning is more important than tax preparation because it is a place where you can really save money.
How can you save money through tax planning? It isn't by utilizing "gray areas" of the tax law. It is by using the tax laws to your advantage and the best options that are legally available to you. These strategies involve utilizing obligations that you already have and use, such as medical expenses, saving for retirement, business related expenses, caring for your children, etc. There are lots of ways to plan and your options depend upon your specific situation. Feel free to contact me to discuss your options.
As a closing thought on this topic, what would you do with the money you are going to save from tax planning?
Right now, capital gains and other tax rates are set to go up in 2011. Look at short-term (1-2 years) needs and plan to minimize your taxes. If If necessary, seek the assistance of a professional accountant or tax preparer.
Be sure to go over your tax return with your tax preparer and then be sure to review it an additional time. You want to make sure that there are no miscommunication issues, anything missing, or any mistakes. Even though you did not prepare the return you still need to understand it as the tax payer is still responsible for what is on it.
Politics affect taxes and taxes affect politics. The fall election and subsequent legislation should be very interesting regardless of who wins.
Electronic Filing Requirements
Starting on January 1, 2011, the IRS is requiring larger accountants, tax preparers, and CPAs to file current year tax returns electronically. They are doing so in order to reduce the governments processing costs. I always encourage clients to file tax returns electronically as it is generally more secure and quicker. Some clients with balances due are hesitant to do so. However, they can still file their returns electronically and make payments (possibly via EFTPS) just prior to the due date.
Direct Deposit Requirements
The federal government has recently announced that it is going to start requiring that all distributions from the federal government take place via direct deposit. Those people that do not own a bank account will be issued a prepaid debit card to use. I have not seen tax refunds directly mentioned in this new proposal, but assume that the IRS will move in this direction in the next several years.
Although I have not seen any proposals that the North Carolina Department of revenue will follow the IRS in their changes, they typically do. I will keep abreast of these potential changes and other changes that may affect taxpayers in the future.
This will be an interesting fall with the election and expiring tax legislation. The current administration has started to float proposals to help small businesses via increased/expanded depreciation, payroll tax holidays, etc. As a tax accountant, I will do my best to stay on top of these legislative changes as people plan for the future.